Be Clear On Housing Issues Nick Smith

The reason for getting the Annual Demographia International Housing Affordability Surveys (www.demographia.com) underway, with the first edition early 2005, was to illustrate clearly that if housing exceeds 3.0 times annual household income (requiring mortgage loads of about 2.5 times annual income), there are political and regulatory impediments to the supply of new housing.

Yes … it is that simple.

I expanded on this within a Sydney Morning Herald article a couple of years ago.

A normal and affordable housing market is structurally defined as follows –

“For metropolitan areas to rate as 'affordable' and ensure that housing bubbles are not triggered, housing prices should not exceed three times gross annual household earnings. To allow this to occur, new starter housing of an acceptable quality to the purchasers, with associated commercial and industrial development, must be allowed to be provided on the urban fringes at 2.5 times the gross annual median household income of that urban market (refer Demographia Survey Schedules for guidance).”

“The critically important Development Ratios for this new fringe starter housing, should be 17 - 23% serviced lot / section cost - the balance the actual housing construction.”

“Ideally through a normal building cycle, the Median Multiple should move from a Floor Multiple of 2.3, through a Swing Multiple of 2.5 to a Ceiling Multiple of 2.7 - to ensure maximum stability and optimal medium and long term performance of the residential construction sector. “

This was all made possible by the creative genius of Bill and Alfred Levitt following World War 11. The Levitt’s were the founders of the modern residential production sector we know today.

The Levitts supplied $US8,000 new 80 square metre homes on lots of about 700 square metres for $US8,000 … supplying them to young New York families with an average (single earner through that era) annual household income of $US3,800 – about 2.1 times annual income.

That worked out at $US100 per square metre ALL UP.

So there is nothing to invent here.

On the fringes of the affordable North American housing markets today, new starter stock is being supplied (serviced section and construction) for in the range of $US600 through $700 per square metre ALL UP.

In contrast … on the fringes of the severely abnormal and unaffordable housing markets of Christchurch and Auckland (Median Multiples now a whopping 7.0) new stock is being put in place for $NZ2,500 + and $NZ3,500 + per square metre ALL UP respectively.

We have two major problems …. strangled fringe urban land supply and inappropriate infrastructure financing.

True rural land values throughout New Zealand are in the order of $NZ10,000 through $NZ40,000 per hectare.

We have oodles of land – just 0.70% of New Zealand is urbanised, with our tiny population of 4.5 million. In contrast, the UK with much the same land area has about 63 million people.

Because Local Governments have lost control of their costs – the major ones in particular – for spurious environmental reasons (masking their incompetence) they have strangled the supply of land on the fringes.

This means they have artificially pumped the cost of raw land up to about $NZ500,000 per hectare on the fringes of tiny Rolleston (even self-respecting rabbits wouldn’t want to live there, as the ground is so hungry) … a million bucks on the fringes of Christchurch and a stratospheric two million bucks on the fringes of Auckland.

Councils … where the costs are out of control with ever expanding bloated bureaucracies, have an insatiable appetite for more revenue year after year, so over the last decade or so, they have “dreamt up” (so called) Development Levies.

As the developers and builders are simply the intermediaries, they just whack these inappropriate raw land and fee costs with fat margins in to the unsuspecting new home purchaser.

Most new home purchasers just don’t have a clue what they are paying (exorbitantly) for.

The industry sprukers with the print media, hungry for advertising revenues, are in no hurry to tell them either.

These are the two major issues the Government must deal with – so that new fringe starter housing can be supplied ALL UP for about $NZ1,000 per square metre.

You should be able to buy a new fringe starter home of 150 square metres for about $NZ150,000 … a 200 square metre one for about $NZ200,000 … and so forth.

Mortgage loads should be about 2.5 times your initial annual household income.

There is nothing clever about being a mortgage slave with 6, 7 and more times your annual income of excessive mortgage debt. Unless you think your Bank is more worthy of your income than your kids. It’s your choice.

What needs to happen in dealing with land supply and infrastructure financing, is clearly outlined within Section 4 of Cantabrians Unite.

Now … wouldn’t it be great if the (highly paid - $NZ250,000 per annum plus perks we pay for) Minister of Housing Hon Dr Nick Smith spelt the issues out this clearly ?

After over 8 long years since the first Demographia Survey was released, this unpaid advocate sure would be grateful if Dr Smith could step up to the plate and explain these issues clearly to his fellow New Zealanders.

As the former All Black Captain and highly respected businessman, the late great Sir Wilson Whineray said when asked what the key ingredients for success and performance are … responded with “The capacity to simplify things and do the simple things well.

So how about quitting the bureaucratic and political “escape hatch” loser confuser talk Dr Smith. Indeed … try the Governor Chris Christie of New Jersey approach … by being honest and refreshing.

Aspirational New Zealand voters (which appear to be the majority – 62% of all and 75% of young Kiwis) are demanding affordable housing, as the 3 December 2012 TV One Colmar Brunton poll found.

We are a fair go country – and take pride in that.

ENDS

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